Provides a measure of strength of the balance sheet. Just as someone earning £100,000 per year would be more comfortable with a £500,000 mortgage than someone on £20,000, a business with a small amount of debt as a proportion of earnings would be more comfortable than vice versa.
Net Debt/EBITDA
= (Debt-cash)/Earnings before interest, tax, depreciation and amortisation
Related articles
William McCubbin, Assistant Research Analyst at JM Finn, gives an overview of finance's hidden drivers.
Henry Birt, Research Analyst at JM Finn, gives an overview of accrual and cash accounting.
William McCubbin, Assistant Research Analyst at JM Finn, gives an overview of country risk.
If you like this article, follow us for more insights.
To receive more content like this subscribe today.